Pvt bank profits slide sequentially in first quarter due to bond rally

Bombay : The majority of private sector banks reported a sequential decline in their net income due to rising bond yields, which impacted their treasury income.

Data collated by capital line showed the collective net profit of 11 private sector banks fell 9% quarter-on-quarter at the end of the June quarter, despite rising 40% from a year earlier.

Kotak Mahindra Bank and HDFC Bank suffered significant losses in cash income, but ICICI Bank, Federal Bank and Indusind Bank showed good cash performance.

HDFC’s operating profit increased only 1.5% year-on-year due to higher cash losses of 1,310 crores and a 29% increase in operating expenses over the previous year. Kotak Bank posted a sequential decline in net profit after taking a market value of 857 crore on its trading portfolio.

Operating profit, excluding market impairment, increased for most private sector banks. Despite a moderation in operating profit, major banks reported improved overall profitability due to lower credit costs. “Overall (private banks reported) good numbers, with asset quality improving and margins holding up well. Growth prospects remain healthy, which, coupled with improving loan yields as portfolios reprice, will help improve industry margins in the coming quarters. Deposit growth for some banks has been subdued and needs to be focused to support loan growth,” said Nitin Aggarwal, Banking Analyst, Motilal Oswal Securities Ltd.

HDFC Bank and ICICI Bank reported strong advance growth at around 21%, driven by retail and small and medium business lending. Some reported sequential filing declines, which weighed on year-over-year filing growth. Both RBL and CSB banks saw moderate deposit growth in the June quarter. Yes Bank saw a sequential drop in deposits, while Federal Bank saw 1% growth on a monthly basis.

The asset quality of most private banks has improved, leading to lower provisions. Indusind Bank saw a 30% year-on-year decline in provisions, with its gross non-performance rate falling to 2.35% in the June quarter from 2.88% a year ago. Only Bandhan Bank experienced a spike in GNPA, which rose 79 basis points sequentially to 7.25%.

Much of the slippage in the quarter came from the distribution portfolio, where recovery prospects were better. ICICI Bank recorded new slippages 5,825 crore in the first quarter, where retail slippages amounted to 5,037 crores. “The cost of credit appears low for large banks, which had a relatively small share of the restructured portfolio, stress in asset quality. Banks, which faced asset quality stress due to covid , continue to report a high cost of credit,” said Anil Gupta, vice president of Icra.

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